How do solar panel subsidies affect gas prices?

The Energy Networks Association (ENA) has revealed a new analysis that indicates solar technology incentives could cause gas bills to rise.

The report, published on September 26, suggests commercial businesses could be paying an additional $50 on their bills by 2034 unless these subsidies are removed. The report describes these subsidies as "distortionary" and says they will make commercial gas prices 5.4 percent higher by 2034.

Core Energy Group performed the analysis and found that these government policies could prevent gas from competing as a "fuel of choice" for both domestic and commercial gas consumers. 

"Recent public debate about the Renewable Energy Target has focused on impacts for electricity users or the renewables sector - but there is a hidden cost for gas consumers", ENA CEO John Bradley said.

According to the ENA there are around 4.5 million household gas users in the country and a further 120,000 business consumers.

Mr Bradley says these people will be surprised to learn that the Government's stance on solar technology could be affecting their future bills so dramatically. 

What current rules surround solar appliances?

In Australia, the Small Scale Renewable Energy Scheme (SRES) subsidises certain solar systems, such as solar hot water units. In fact, these are often subsidised by up to 30 percent based on the greenhouse gas abatement that has been calculated.

These systems rely on the sun to heat water and do not emit any carbon, so they are generally considered a great environmental choice.

However, according to Mr Bradley, gas hot water appliances can achieve about the same level of abatement - if not more.

He says gas hot water systems look more expensive to the consumer since they are not subsidised but this unpopularity is having a negative effect on emissions.

How do solar appliances push gas prices up?

In the report, Mr Bradley details how solar hot water systems are pushing up gas prices. He states gas prices are inflating because solar is reducing the amount of gas in the network. This in turn, follows the rules of supply and demand, meaning gas prices naturally rise as a result.

Solar subsidies also remove the annual direct and indirect capital investments. The report suggests these investments are often to the tune of $200million. This could have far reaching impacts on the economy as a while, according to the report, with an economic loss of $1.5 billion.

"It is absurd for Australians to keep subsidising a proven technology like solar panels at a cost of up to $200 per tonne of abatement but particularly if it adds $50 per year to gas consuming households already grappling with Australia's transition to an internationally-linked wholesale price," Mr Bradley said in a press release.

The report indicates that even though wholesale gas prices in eastern Australia have continued to double, residential and commercial gas consumers could expect lower gas bills if the subsidies were removed. In fact, the report indicates that without subsidies, these bills would be 5.4 per cent lower than current levels, and that 7 per cent more gas would be consumed throughout the country.

On the other hand, if these solar subsidy programs continue, wholesale prices will continue to rise for homes and businesses Down Under. In fact, these prices would see a further rise of 8.24 per cent, or $80 per year by 2034 when compared to current levels.

What does the ENA recommend?

In light of their research, the ENA recommends that the SRES policy be stopped, so that all appliances can be based on emissions abatement.

"There is an opportunity for the Australian Government to take action that is in the long term interests of consumers, and which has the potential to reduce gas prices without comprising Australia's international commitment to reducing greenhouse gas emissions," Mr Bradley said.

What are the views of Ausgrid?

Ausgrid released an executive report on the state of the country's energy future in July. This indicates that solar still has a promising future.

Solar capacity may increase by as much as six or seven times in the next 20 years. However, it also went on to say that subsidies may be required to maintain this high level of growth. 

"Analysis has clearly shown that both the volume and system size of future rooftop solar PV deployment in Australia is sensitive to a number of financial factors including solar PV system costs, the level of feed-in tariffs and the retail pricing structures for electricity sourced from the grid (electricity tariffs)." 

What are the benefits of solar?

Solar is a renewable energy source and does not produce any greenhouse gas emissions. This is why many people opt to use these systems, which can reduce reliance on the grid. 

On the other hand, gas hot water systems are less damaging to the environment than electric ones, producing a third of the amount of greenhouse gases.

If you want to see how you can lower your water heating bills, you could also consider doing a gas comparison. Another supplier may be able to offer you a more attractive deal.

Posted by Paul Doyle.